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Industrial workers lose out to Sydney's knowledge elites

John Muscat / 14 December 2014

The coalition of officials, academics, executives, urban designers and apartment builders who make up The Committee for Sydney, an influential lobby group, should spend more time out of their green-rated CBD towers. They love to celebrate Sydney’s arrival as a global city, insisting it ‘must attract, and as importantly retain, the highly skilled and knowledge-rich workers on which modern economies rely’. Yet SGS Economics & Planning report that after 5 years of decline, the much-dismissed manufacturing sector is again contributing to the city’s growth. Metropolitan GDP rose 4.3 per cent in 2013-14, and only the finance and insurance industry’s contribution of 0.8 per cent exceeded manufacturing’s 0.4 per cent. This comes as trade-exposed Sydney overtakes insular Melbourne as the country’s largest manufacturing centre.

An industrial economy based on manufacturing, construction, freight transport and warehousing accounts for around 21 per cent of Sydney’s jobs and 27 per cent of its $353 billion GDP. Uptake of industrial land has actually jumped 37 per cent since 2012. And this in sectors which are barely acknowledged by the cognoscenti, who claim the future belongs to inner-ring knowledge workers, a handful of smart hubs, and the amenities that connect them.

Everyone’s heard the mantra. We must plan our activities around knowledge-intensive sectors like business services, information and communications technology, finance and insurance, healthcare and education, design and media. Developed countries like Australia can’t hope to compete with the developing world in manufacturing and other industrial activities.

There’s some truth in this, of course. China, our largest trading partner, isn’t called the ‘workshop of the world’ for nothing. And manufacturing has declined from 14.6 per cent of Sydney’s economy in 1993-4 to 6.2 per cent in 2013-14. But just as, in the case of material industries, subsidies and protectionism weigh down the general economy, interventionism that elevates knowledge over material or industrial sectors can amount to the same thing.

Not all of this decline can be sheeted home to globalization. Much urban planning consists of allocating zoning rights and infrastructure resources to preferred regions and sectors. Energy, workplace and fiscal policies bound up with concepts of the knowledge and advanced services economy also play a role. In its recent study, The Shifting Economics of Global Manufacturing, Boston Consulting Group assigns Australia to the ‘losing ground’ category. Our manufacturing is on the wrong side of four dimensions ‘redrawing the competitiveness map’: wages, exchange rates, energy costs and labour productivity. Of direct concern to urban policy, BCG notes the adverse impact of logistics costs on the location of supply chains.

At some point ‘picking’ knowledge ‘winners’ over material losers becomes a zero sum game ─ a self-fulfilling strategy heaping privileges on professional elites at the expense of otherwise viable industries and well-paid material jobs.

Austropolis

There are alternatives to the CBD-centric, transit-oriented, high-density model pushed so relentlessly by lobbies and progressive pundits. In 2009 the World Bank published a landmark report on the role of urbanization in economic development, Reshaping Economic Geography. ‘Urban systems exhibit some stylized patterns’, it explains: ‘mid-size cities tend to specialize in mature industries, not new ones, and larger cities specialize in services not manufacturing’. Moreover ‘improved infrastructure and falling transport costs have encouraged standardized manufacturing production to move out of high-rent centres to smaller cities’.

Unlike developed regions of Europe, North America and Asia, however, the Australian land-mass is too sparsely populated to support second tier cities of magnitude. After the scattered state and territory capitals, lower ranked centres are too remote from continental transport hubs and corridors, and too small as labour and consumer markets, for an effective role in any hierarchy of urban specialization.

More so than elsewhere, such a spatial division of functions has to emerge from our expanding metropolitan regions. This is a distinctive feature of Australian cities. Yet it receives scant attention in the mono-functional perspective of elite urbanism.

Under the influence of mass motorized transportation and globalization, geographic ‘sorting’ has been going on in our major cities for decades. Almost 50 per cent of Sydney’s manufacturing output is produced on cheaper land in the outer western 12 of the city’s 42 Local Government Areas. Western Sydney hosts 70 per cent of the city's 'industrial lands' and a third of the total manufacturing, transport, warehousing and wholesale trade workforce of New South Wales. Essential Economics and Geografia count it amongst regions that ‘have land-use profiles and workforces commensurate with’ the higher-skilled, higher value-adding manufacturing activities of the future. As the World Bank report said, ‘manufacturing requires large amounts of land for factories to produce goods, and for warehouses to store products and materials’.

Beyond the ‘dream demographic’

But these days the free-ranging movement of people and industries bumps into fashionable planning nostrums. Here’s a typical spiel from The Committee for Sydney:

Typically, cities with agglomerations of knowledge economy jobs, and the productivity and innovation which flow from clustering knowledge workers and the economic spill-overs they create when they interact, are outperforming cities which offer more dispersed economic activities for example based on resources or manufacturing.

Sydney is Australia’s best example of a city with agglomerations of knowledge based globally competitive sectors. Public policy needs to be aligned behind the objective of providing the environment, infrastructure, transport / connectivity and housing which reinforces its attractions to the key 25-34 year old early to mid-career professional cohort. This is typically drawn to close-in suburbs or districts of larger metropolitan areas with better access to jobs, further education, entertainment and other opportunities. This cohort has been called the ‘dream demographic’ for the knowledge based economy and attracting and retaining them must be a key part of our human capital strategy for Sydney.

This prescription has many flaws. For one thing it ignores the continental primacy of our metropolitan regions, which have to encompass an amalgam of spatial specialisations. Focusing on the priorities of one economic sector defies reality. Industrialization on the fringe resembles the World Bank report’s ‘incipient urbanization’, a phase when ‘neutrality between places should be the watchword of policymakers’. Harvard economist Edward Glaeser also lauded the economic efficiency of ‘spatial neutrality’ in Triumph of the City. In Australian conditions, but even more generally, the modern polycentric or even non-centric metropolis needs to unleash productivity growth across a multiplicity of industries and locations.

A more useful perspective can be found in the work of Alain Bertaud, senior researcher at New York University’s Stern Urbanization Project. Pouring scorn on the ‘urban village model’ of concentrated jobs in many small clusters, Bertaud argues ‘this model does not exist in the real world because it contradicts the economic justification of large cities: the efficiency of large labour markets’. As he explains:

Once jobs have dispersed into a pattern similar to the dispersed/polycentric model, it is unlikely that they will eventually concentrate again into a dense, central CBD. This path dependency rule common to all evolving shapes, is a reality that should seriously limit the freedom of planners to dream up new urban forms.

‘Urban village’ arrangements, writes Bertaud, are inconsistent with ‘the economic efficiency of large labour markets and the mobility that large labour markets require in order to function’. The effective size of a labour market is defined by the number of jobs reachable in less than 60 minutes and this correlates to maximum productivity. The crucial dimension is travel time (speed) rather than travel distance (density). Remy Prud’homme of Harvard and The University of Paris, cited by Bertaud, also stresses the importance of speed, noting the superior performance of private cars.

With other researchers, Bertaud observes that higher densities generally fail to raise transit use but generate more traffic congestion, a phenomenon some have labeled ‘the paradox of intensification’. Dense cities with shorter distances but inconvenient and slow-moving public transport can be less productive than wide open cities with free-flowing motorways. According to Bertaud, the implications for transport network planning in a dispersed, polycentric city are clear:

As can be seen from the historical trend the monocentric model tends to break down when a city becomes larger … An original network of primary radial roads would reinforce a high degree of monocentricity as a city expands by making it easier to go to the CBD than to peripheral locations … By contrast, a primary grid network would rapidly encourage the creation of sub centres with good overall accessibility as a city develops … The grids in these cities sometimes become irregular, but the availability of wide roads, perpendicular to the radial roads at the fringe of urbanization, stimulates the creation of sub-centres, and perhaps even of job dispersion, because wide roads allow for higher driving speeds and, therefore, for faster accessibility to areas farther away from the radial roads.

At Sydney University’s Institute of Transport and Logistics Studies, Professor David Hensher is one of the city's more astute transport analysts. ‘We are seeing circumferential congestion and that’s coming about because of the growth in these business parks like Macquarie Park and Norwest’, he recently told the media, ‘people who work in these parks come from all over the place and public transport isn’t really serving them well’. In line with Bertaud, Hensher ‘said “circumferential” infrastructure links between the suburbs needed to be the focus instead of “radial” roads that linked suburbs to the city’.

Off the grid

Unfortunately for Sydney’s industrial workers, the political class – on both sides – is more often swayed by lobbies backing The Committee for Sydney than sound thinking from the likes of Bertaud and Hensher.

Over this year, the NSW Government has announced a $20 billion suite of projects to be funded from part sale of the state’s electricity network. Some $1.1 billion will go to the WestConnex motorway, a 33 kilometre road tunnel under the inner-west to the CBD. At least this augments the Orbital Motorway Network, which bears some relation to a Bertaudian grid. So much can’t be said for the largest expenditure item. With a price tag of $7 billion, Sydney Rapid Transit, a metro-style rail line, will converge on the CBD from the far north-western suburbs. The Government is already committing over $2 billion to extend the Inner-West Light Rail and South East Light Rail into the CBD. These three projects reinforce the city’s early and outgrown radial transport system, traversing some of the most affluent and least industrialized areas. Sydney Rapid Transit tracks the ‘Global Economic Corridor’ and its concentration of knowledge workers. Another $1 billion is allocated for a light-rail line to Parramatta, touted as ‘the second CBD’.

On the other hand, construction of the Outer Sydney Orbital or M9 corridor, complementing the Orbital Motorway down its far-western flank, would transform Sydney’s industrial heartland. Yet it merits only a $4.6 million study and won’t see the light for decades.

This has implications for land use planning, with negative impacts on the industrial fringe. Just as residential development on the periphery is confined to the North West Growth Centre and the South West Growth Centre, Government policy concentrates industrial development in the 10,690 hectare Western Sydney Employment Area (WSEA) and designated ‘industrial lands’. Bureaucratic planners have a misplaced confidence in their ability to ‘put people near jobs’ and ‘put jobs near people’. Extending from a thriving industrial hub at the intersection of the M4 and M7 motorways, WSEA’s location has advantages. But rigid boundaries around residential and industrial development, combined with piecemeal infrastructure upgrades, are escalating land values across Sydney and distorting the market.

Restrictive zoning has stymied the supply of serviced industrial land directly, but also indirectly. Property firm Savills point out that many industrial sites are owned by a handful of large real estate trusts and fund managers, including Goodman Group, Australand, DEXUS, GPT, Fitzpatrick Investments and Fife Capital. Economists Alan Evans and Oliver Hartwich observe that industrial firms now lease rather than own their plant, so landowners may choose to landbank or passively capture incremental values rather than develop their properties. Signalling a supply deficit, agents Jones Lang Lasalle estimate that capital allocated to western Sydney industrial property ‘typically exceeds available product by a ratio of 5:1’.

This raises questions over the fringe’s capacity to absorb new activity, not to mention industrial operators who are selling out to residential developers near the core. Inflated house prices crimp manufacturing by ratcheting up wage demands, as economist Leith van Onselen explains, but they hurt another way. Thanks to global investors and pumped up land values, apartment building is the highest and best use for extensive tracts of land down the eastern side of the city. Sydney’s densest industrial zone used to stretch south from the state’s railway hub below the CBD at Central Station to Port Botany and Kingsford Smith Airport. Now, industrial units in South Sydney are worth twice as much as residential developments, say agents Knight Frank. Big landowners, apartment builders and elite professionals are raising a toast to ‘Global Sydney’. Others watch factories and warehouses submerge beneath the tide of luxury towers, and wait for jobs that never come.